U.S. trade deficit widens in August, but net exports to underpin economic growth in Q3

The U.S. trade deficit broadened slightly in August after narrowing significantly in July. The deficit came in slightly bigger than the median survey estimate. The trade deficit widened to USD 40.7 billion as compared with the median survey estimate of USD 39.2 billion.

Nominal exports grew 0.8 percent in August, driven by industrial supplies and automotive exports that grew 4.2 percent and 3.1 percent respectively. In the meantime, imports grew 1.5 percent in August, led by food and beverages and capital goods, which grew 2.4 percent each. On the other hand, real goods exports and imports rose more modestly by 1.8 percent and 0.8 percent respectively.

August trade report was good, with strong gain in August exports building on the solid gain in July. This sets up net-trade to positively contribute to economic growth in the third quarter, possibly adding half a percentage point to real GDP growth.

Net trade’s contribution to the U.S. economic growth has moved from deeply negative last year to modestly positive in the course of 2016. The global economy is expected to remain a source of uncertainty and possible downside risk to the U.S. economy; however, with a stable dollar, the worst drag seems to be in the rear view mirror, according to TD Economics.